More financial bombshells for baby boomers: Don’t count on that inheritance

posted at 2:41 pm on June 11, 2012 by Erika Johnsen

Is no age group safe from the fiscal woes of economic near-recession and pending entitlement crises? (Hint: No.) While we often focus on the troubles of young people unable to find employment and just chillin’ on the parents’ couches, and we’re already well aware of the upcoming squeeze on Social Security as baby boomers begin to reach retirement age, here’s a fun and exciting reminder from the Wall Street Journal.

For years now, there’s been a lot of talk about boomers getting tremendous windfalls as their parents pass on. Many boomers, in fact, have been lagging behind in their savings, betting on—hoping for—big bequests, especially since many of them suffered big losses in 2008.

But for a growing number of boomers, things aren’t going according to plan. The postwar generation is living longer—and many are spending their savings along the way. And, of course, many of them also took a hit in 2008.

The result is that, as a group, boomers likely won’t be getting as much of an inheritance as they hoped. Even worse, far from receiving a bequest, a growing number are tapping some of their own savings to help their cash-strapped parents make ends meet. …

“There are way too many adult children I see who are looking at Mom and Dad’s estate as their ticket to a secure retirement,” says M. Holly Isdale, an estate planner in Bryn Mawr, Pa. “But with people living longer, much of the money is likely to be spent.”

How much longer? Thanks to medical gains, a 65-year-old man has a 60% chance of living to age 80 and a 40% chance of reaching 85. For women, the odds are 71% and 53%, respectively. All of this has made the 85-and-over age bracket the fastest-growing segment of the population. In an era of low interest rates, volatile financial markets, and rising costs for health and long-term care, finding money to cover those years isn’t always easy.

This inheritance-news is just one in a long line of financial challenges and demographic nightmares facing the baby boomers (Americans born between 1946 and 1964) as they near retirement. Conversations about death and mortality, finances and inheritances, are already difficult and awkward enough, and the added weight of ongoing lackluster returns, a poor housing market, and escalating healthcare costs (combined with longer lifetimes) are making it all that much harder.

With adult children still living at home adding to baby-boomer parents’ financial strain, perhaps compounded by their own parents now needing financial assistance… this is shaping up to look like a pretty darn painful demographic shift. Yikes. We need to get some wealth creation and growth going in this economy, stat!

Accounting for nearly one-fourth of the U.S. population, their impact on the economy, government policy and culture is expected to be every bit as profound in their golden years as it has been since their birth. …

According to an article published on The American Dream, a website of social commentary, as many as 36 percent of those in the baby boomer generation have not contributed to a retirement program of any kind. Among those who did, many relied on 401(k)s and investment portfolios that have been seriously compromised by collapsing markets. …

Compounding efforts to build security has been a decade of the worst performance in history of financial markets, impacting 401(k)s and other securities-based investments. “They’ve not grown like previous decades. That’s just the reality,” Siebenmorgen said.

The Employment Benefit Research Institute reports 35 percent of those of retirement age are almost totally dependent on Social Security benefits for income. Only about half the remaining 65 percent have retirement savings of $50,000 or more.